Correlation Between Cadiz and Dominion Energy
Can any of the company-specific risk be diversified away by investing in both Cadiz and Dominion Energy at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Cadiz and Dominion Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cadiz Inc and Dominion Energy, you can compare the effects of market volatilities on Cadiz and Dominion Energy and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Cadiz with a short position of Dominion Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cadiz and Dominion Energy.
Diversification Opportunities for Cadiz and Dominion Energy
-0.31 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Cadiz and Dominion is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Cadiz Inc and Dominion Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dominion Energy and Cadiz is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Cadiz Inc are associated (or correlated) with Dominion Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dominion Energy has no effect on the direction of Cadiz i.e., Cadiz and Dominion Energy go up and down completely randomly.
Pair Corralation between Cadiz and Dominion Energy
Given the investment horizon of 90 days Cadiz Inc is expected to under-perform the Dominion Energy. In addition to that, Cadiz is 2.4 times more volatile than Dominion Energy. It trades about -0.11 of its total potential returns per unit of risk. Dominion Energy is currently generating about 0.01 per unit of volatility. If you would invest 4,851 in Dominion Energy on January 19, 2024 and sell it today you would earn a total of 6.00 from holding Dominion Energy or generate 0.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cadiz Inc vs. Dominion Energy
Performance |
| Timeline |
| Cadiz Inc |
| Dominion Energy |
Cadiz and Dominion Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cadiz and Dominion Energy
The main advantage of trading using opposite Cadiz and Dominion Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cadiz position performs unexpectedly, Dominion Energy can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Dominion Energy will offset losses from the drop in Dominion Energy's long position.The idea behind Cadiz Inc and Dominion Energy pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Dominion Energy vs. Southern Company | Dominion Energy vs. American Electric Power | Dominion Energy vs. Nextera Energy | Dominion Energy vs. Consolidated Edison |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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